US airport expansion projects risk higher fares

Rising airline rent and landing fees related to airport renovation and expansion projects across the US are likely to be passed onto travellers in the form of higher airfares.

Moody’s Investors Service said in a new report that big-budget projects at Los Angeles International Airport, John F. Kennedy International Airport in New York, Newark International Airport, and others will cause airline operating costs — and related borrowing — to rise.

Moody’s estimated that rent and landing fees charged to airlines will increase 25 per cent by 2021, and by an average of 32 per cent at the 25 largest US airports.

“These increases are manageable and should be able to be recovered through higher fares,” according to the credit-rating agency.

The increases will hit Delta Air Lines hardest, with the Atlanta-based carrier seeing its airport-related expenses rising an estimated 39 per cent over the next five years. But cost increases for other major carriers, like American Airlines, Southwest Airlines, and United Airlines, won’t be far behind.

That will spur airlines to borrow a cumulative $11.7 billion in 2017 and $6.9 billion to cover expenses, Moody’s estimated. Still, rent and landing fees will represent only about 1.5 to 2.5 per cent of airlines’ total operating expenses by 2021, as airlines continue to add to their fleets and flight schedules to match the increasing demand that’s also driving airports to expand.

“Much of the growth in enplanements has been driven by airlines using larger planes,” said report author Earl Heffintrayer, a vice president and senior analyst at Moody’s. “Larger planes need expanded terminal and runway space, which is driving the capital expansion.”